May, 2001

To: Our Stockholders

As many of you have read  recently  in our local  newspapers,  we are excited to
announce our  expansion to the Cedar  Rapids,  Iowa  market.  We have  carefully
studied the  opportunities  in this market in recent years and are quite pleased
we were able to team up with this group of talented bankers.  Larry Helling will
lead the  effort  in Cedar  Rapids  and will be joined  by Mitch  McAlree,  Dana
Nichols and John  Rodriguez.  Each of these  individuals  has more than  fifteen
years in the financial industry,  much of it in the Cedar Rapids market. Most of
their initial efforts will be directed to the commercial  banking market,  which
is consistent with our focus in the Quad Cities.

The Cedar Rapids operation will function as a branch of Quad City Bank and Trust
Company, initially, subject to regulatory approvals that are expected during the
month of May. A charter  application for Cedar Rapids has been filed as well and
is  likely  to be  acted on by the  regulators  by late  fall of 2001.  The name
selected  for the  charter is Cedar  Rapids  Bank and Trust  Company.  Temporary
office space has been procured in downtown Cedar Rapids and a permanent  banking
location is currently being  negotiated,  also in the downtown area.  Additional
capital  is planned to be raised  this  summer,  primarily  in Cedar  Rapids.  A
private placement will be conducted of common stock of Quad City Holdings,  Inc.
of approximately $5 million.

Cedar Rapids is clearly one of the  strongest  business  markets in the state of
Iowa, yet it lacks a locally  managed,  community  oriented bank with a focus on
commercial  banking.  With the  talented  group of bankers  and a local Board of
Directors for Cedar Rapids Bank & Trust,  we feel we have a winning  combination
to continue  our growth in eastern Iowa and western  Illinois.  The Cedar Rapids
operation  will  utilize  many  of  our  existing   administrative  and  support
functions.  These  resources  can be used to more  efficiently  provide  support
services and allow the Cedar Rapids group to focus on growth and providing  high
service levels to their customers in that market.

Growth continued in our existing  operation as consolidated  assets increased to
$407  million  at March 31,  2001,  from $394  million  at  December  31,  2000.
Consolidated  assets were $368  million at our prior fiscal year end of June 30,
2000 and were $349  million  at March 31,  2000.  Much of the  growth  was again
focused  on the loan  portfolio  as net  loans  receivable  increased  from $262
million  at  December  31,  2000 to $273  million at March 31,  2001.  Net loans
receivable  were $215  million at March 31,  2000.  Deposit  rates were  reduced
during the  quarter,  as The Federal  Reserve  dramatically  lowered  short-term
interest rates,  slowing our growth in this area. As a result,  much of our loan
growth was funded by borrowings  from the Federal Home Loan Bank and  repurchase
agreements  with  customers.  Stockholders'  equity  increased to $23 million at
March 31, 2001 as compared to $22 million at December  31, 2000 and $ 20 million
one year ago.  The increase in equity was the result of both  retained  earnings
for the  quarter  and an increase  in the  unrealized  appreciation  in our bond
portfolio.

Basic  earnings per share  increased  from $.15 for the December 2000 quarter to
$.28 this quarter while  earnings for the March 31, 2000 quarter were $.33.  For
the nine months  ended March 31,  2001,  basic  earnings  per share were $.72 as
compared to $.92 one year ago. The reduction in earnings this year is the result
of several factors  including the opening of our fourth full service facility on
Utica Ridge Road in Davenport,  a reduction in  processing  volumes at Quad City
Bancard,  and the legal fees  incurred  in defense of the PMT  litigation.  On a
positive note, our residential  mortgage  department has seen significant growth
as a result of lower  interest  rates.  Gains on loan sales for the quarter were
$314  thousand  compared to just $71  thousand  one year ago.  It appears  these
volumes will continue through the end of our fiscal year,  unless interest rates
move upward.

As you recall,  we initiated  action against PMT Services,  Inc. in an effort to
collect a large receivable of approximately $1.7 million. In response, PMT filed
a lawsuit in California against Quad City Bancard,  Inc. and Quad City Holdings,
Inc. alleging wrongdoing on our part and seeking recovery of damages. We filed a
petition to compel  arbitration  in Iowa District Court of Scott County and that
court has now ruled that all claims,  including tort claims,  must be arbitrated
in Iowa.  We continue to believe that PMT's  allegations  are without  merit and
will vigorously pursue our right to recover the receivable and to defend against
PMT's claims.

We are pleased to announce that Charles A. Ruhl, Jr. has been added to the board
of Quad City Bank and Trust  Company.  Chuck is the  president  of Ruhl and Ruhl
Commercial Company and is a lifetime member of the Quad City community.  Chuck's
knowledge of the market will be a valuable addition to our board.


Taking advantage of the opportunity in Cedar Rapids provides for the prospect of
continued growth. However, with such growth will come initial start up losses in
that operation.  Historically,  over the years, de novo banks typically  achieve
profitability  by the end of their third year of operations.  Quad City Bank and
Trust Company was able to achieve  profitability  more quickly and we plan to do
so in Cedar Rapids as well. Your board is very confident that this was the right
long term  decision  for the Company and we hope that you as a  shareholder  can
continue to take a long term view.

We are approaching our eighth fiscal year end as a public company.  Your support
as a stakeholder in our  organization has been much  appreciated.  Trust that we
will  continue  to work  toward  good  long-term  decisions  that will result in
improved shareholder value.